Market Matters Report / The Hickman Report Saturday 11th October 2014

By Market Matters 11 October 14

The Hickman Report Saturday 11th October 2014

The Hickman Report - Saturday 11th October 2014

Overall Market Matters macro view

The weakness in Australian equities accelerated last week with the ASX200 closing 130 points lower (2.4%), now 8.7% below August highs, following the US where the S&P500 closed 3.2% lower. US stocks had their worst weekly drop in 2 years, amid significantly increased volatility: the S&P500 has had 6 days of over 1% moves in October, after going 62 days without such a move, the longest stretch of market calm since 1995. Last week was simply an emotional roller-coaster as investors questioned growth outside of the US. The big numbers are clearly ugly as global equities have lost $3.5 trillion in value since the highs of mid-September but US equities are still short of their first 10% correction in 3 years. At times of panic investors should stand back, breath and embrace opportunities – remember we have been negative for recent months, its shopping time.

Remember Warren Buffett’s famous quote – “Attempt to be fearful when others are greedy and greedy only when others are fearful”.

Picking a bottom in any falling market is fraught with danger and pure luck if you nail the exactly level, hence why I have been a “scale in buyer” of selected stocks during periods of recent weakness. I am looking for a decent low in mid/late October for run up into December and that period commences Monday when the ASX200 is likely to reach lows seen since February 2014. The combination of the below 2 statistics is exciting:

  1. The All Ordinaries Index has been down for 7 consecutive weeks, since 1980 this has happened on 6 previous occasions. For the 8-weeks following this setup the Index has averaged a gain of 4% with 100% success rate - www.ProbabilityTrader.com.
  2. Since 1980, the October/November/December period on the S&P500 has a median gain of nearly 5.3% (7.8% since 2001).

This week’s clearest current technical charts are again a mixture of macro and stocks:

Bullish: The ASX200 strong support under 5100 looks likely to be tested, the IBEX & DAX are at my buy levels, Fortescue (FMG) is approaching trading buy levels of $3-$3.10, CBA should rally at least $4 from the $73 area (2.4% lower), Bank of Queensland (BOQ) is the strongest bank, Macquarie (MQG) is a buy around $53.30, Seek (SEK) remains a buy at $15,

Bearish: Gold remains very bearish, the Dow should fall another 500-pts minimum, NASDAQ should fall another 2.5%, National Australia Bank (NAB) is the weakest bank, Wesfarmers remains negative target $37 area,

My conclusions:

  • I believe this pullback, which I think is approaching completion, is one to be bought and nothing more sinister.
  • I am not convinced we will rally back over 5680 August high but I expect to reassess at the 5400 area (4-5% higher).
  • If stocks hit buy zones do not be afraid to “pull the trigger”.

What Matters this week

The ASX200 is looking to open about 50 points lower on Monday, at around 5135, another sea of red to start the week but this is what we need looking for a panic low next week.

 


Potential Investing opportunities for the coming week

  • I am a buyer Commonwealth Bank (CBA) around the $73 area.
  • I remain a buyer of Seek (SEK) around $15.
  • I remain a buyer of Flight Centre (FLT) in the $40-42 area.

Potential Trading for the coming week

  • I am looking for a “panic low” in the ASX200 this week, feels likely to be under 5100.
  • Traders can buy Fortescue (FMG) around $3-3.10 looking for a 10% bounce minimum.
  • Traders can also buy CBA looking for a $4-5 rally from the $73 area.

 

  • Watch for specific ideas in morning reports and Alerts when I transact.

Portfolio Holdings

Last week my portfolio had an average week basically tracking the ASX200 which fell 2.4%. This is remains an excellent period for my short calls (Sophisticated investors only).

  1. ANZ Bank (ANZ) -1.3%.
  2. Ansell (ANN) -2.7%.
  3. Bank of Queensland (BOQ) -1.7%.
  4. Challenger (CGF) unchanged.
  5. Commonwealth Bank (CBA) -2.4%.
  6. Flight Centre (FLT)  -0.8%.
  7. Insurance Australia Group (IAG) -2.1%.
  8. Myer Holdings (MYR) -2.6%.
  9. Seven West Media (SWM) -5.5%.

*Please note I have held my stocks as I am short calls BUT otherwise I would be out of all except ANZ, Bank of Queensland and Flight Centre.

*I will be revaluating a number of above closely this week as my patience is getting stretched and quality stocks that I have been waiting for weeks to purchase are close to buy levels e.g. Flight Centre (FLT). Any further Ebola scares are likely to hurt FLT but if we back mankind to deal with this medical issue it will become an excellent buying opportunity.
** If I believe we have seen a low next week I will take profit on all short calls.

  • Cash, around ~10%.

Australian ASX200

I am now becoming positive the ASX200 looking for a 4-5% rally from the 5100 area minimum.

Chart 1 – ASX200 Monthly Chart

Chart 2 – ASX200 Weekly Chart

Chart 3 – ASX200 Daily Chart

Chart 4 – SPI (Share Price Index) Futures 60 mins Chart

Chart 5 – Volatility Index VIX Weekly Chart

Chart 6 – The US 10 year Interest Rate Monthly Chart

Chart 7 – New Zealand 50 Index Monthly Chart 


American Equities

The American indices have not moved together but the Russell 2000 has now hit my initial retracement target and we could be potentially embark on a rally into Christmas BUT the NASDAQ, and Dow, in particular look to have further downside first.

Chart 8 – Dow Jones Index Monthly Chart 

Chart 9 – Dow Jones Index Daily Chart 

Chart 10 – S&P 500 Monthly Chart 

Chart 11 – S&P 500 Weekly Chart 

Chart 12 – Russell 2000 Index Monthly Chart 

Chart 13 – NASDAQ Weekly Chart 

Chart 14 – Canadian S&P/TSX Composite Index Monthly Chart

 

European Indices
I would still rather be marginally long at current levels looking to add into fresh recent lows.

Chart 15 – Euro Stoxx 50 Weekly Chart

Chart 16 – FTSE Weekly Chart

Chart 17 – Spanish IBEX Monthly Chart

Chart 18 – Spanish IBEX Weekly Chart

Chart 19 – German Dax Monthly Chart

 

Asian Indices

Most Asian indices are now neutral but China remains firm.

Chart 20 – Hang Seng Weekly Chart 

Chart 21 – China Shanghai Composite Monthly Chart 

Chart 22 – Japanese Nikkei 225 Monthly Chart

 

Australian Stocks
Buying sustainable yield and selling XJO calls has been a logical strategy over recent years. However, the risk of rising bond yields has resulted in me now recommending a far more balanced portfolio. There are ongoing clear signs of this emerging at present from the US, but the local economy and especially Europe are faltering, so rates are likely to remain lower for longer in Australia which clearly helps the banks.

Chart 23 – BHP Daily Chart 

Chart 24 – Santos (STO) Weekly Chart 

Chart 25 – Woodside (WPL) Monthly Chart 

Chart 26 – RIO Tinto (RIO) Weekly Chart 

Chart 27 – Fortescue Metals (FMG) Weekly Chart 

Chart 28 – Vale (US) Weekly Chart 

Chart 29 – Newcrest Mining (NCM) Monthly Chart 

Chart 30 – CBA Quarterly Chart

Chart 31 – ANZ Bank (ANZ) Monthly Chart

Chart 32 – Westpac Bank (WBC) Weekly Chart

Chart 33 – National Bank (NAB) Weekly Chart

Chart 34 – Macquarie Bank (MQG) Weekly Chart 

Chart 35 – Bank of Queensland (BOQ) Weekly Chart 

Chart 36 – AMP Weekly Chart 

Chart 37 – Challenger Financial (CGF) Monthly Chart 

Chart 38 – Suncorp Group (SUN) Monthly Chart 

Chart 39 – Insurance Australia (IAG) Monthly Chart 

Chart 40 – QBE Insurance Monthly Chart

Chart 41 – Wesfarmers Ltd (WES) Weekly Chart

Chart 42 – Woolworths Ltd (WOW) Monthly Chart

Chart 43 – Seek Ltd (SEK) Weekly Chart 

Chart 44 – Real Estate Australia Group Ltd (REA) Monthly Chart 

Chart 45 – Telstra (TLS) Monthly Chart 

Chart 46– M2 Group Ltd (MTU) Monthly Chart 

Chart 47 – Crown Resorts Ltd (CWN) Monthly Chart 

Chart 48– Ansell Ltd (ANN) Monthly Chart 

Chart 49– CSL Ltd (CSL) Monthly Chart 

Chart 50 Ramsay Healthcare (RHC) Monthly Chart 

Chart 51– Resmed (RMD) Weekly Chart 

Chart 52 - Fairfax Media (FXJ) Monthly Chart 

Chart 53 – Seven West Media (SWM) Monthly 

Chart 54 - Flight Centre (FLT) Monthly 

Chart 55 – Coca-Cola Amatil (CCL) Weekly 

Chart 56 - Australian Retail Index Monthly 

Chart 57– Myer Holdings (MYR) Weekly 

Chart 58– JB Hifi (JBH) Monthly 

Chart 59– Harvey Norman (HVN) Monthly 

Chart 60– Australian Dollar (AUD) Weekly Chart

The $A looks to have “cracked” and technically I am ultimately targeting the 81c area.


Commodities
Gold remains very weak and I believe it falls towards the US$1,100/oz area.

Copper remains very negative on a longer term basis, a very similar chart pattern to Newcrest Mining (NCM) and unfortunately we all saw what happened there.

Crude Oil remains negative at present.

Chart 61 – Gold Monthly Chart

Chart 62 – Copper Weekly Chart

Chart 63 – Crude Oil Monthly Chart


Please note this is my personal TECHNICAL opinion of markets and "General Advice" taking no account of individual’s circumstances.


Have a great week,

Shawn Hickman
marketmatters.com.au

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